Debt2Assets

Stimulus Bucks: Buy or Pay Down Debt?

As the U.S. Senate puts the final touches on what they hope will be a piece of legislation that passes Senate and presidential scrutiny, talk is brewing on just how the average American will use his stimulus check. Although the amount proposed hasn’t been finalized ($600 for individuals, $1200 for married couples), checks should begin arriving this June.

The key with the package is economic stimulus (although some might say pandering for votes is a more accurate description) with politicians hoping that Americans will spend their checks to bolster the economy. However, that desire may not come forth as many consumers are likely to take their checks and use them to pay down debt.

In a survey conducted by the International Council of Shopping Centers and financial services firm UBS Securities LLC, 43% of the people polled said that they would apply their checks against current debt.  26% said that they would save the money while 24% are planning to spend their checks.

Money Management International, a non-profit credit counseling agency is encouraging consumers to weigh their options and has released suggestions on where the money could go including:

• Pay down debt. A $2,000 credit card balance with an 18 percent interest rate could take nearly 12 years to repay when making the minimum monthly payment. However, if you apply $1,200 to the bill, you could repay that same debt a fraction of the time.

• Save for emergencies. Americans are currently saving at negative rates, a first since the Great Depression. With no savings, an unplanned expense could turn into a financial emergency. Placing your rebate check in a savings account could mean the difference between a financial difficulty and a financial disaster when unexpected expenses arise.

• Prepare for the holidays. Too many people get in over their heads during the holidays and being in debt is no way to begin a new year. Set this windfall aside for holiday expenses and avoid post-holiday debt.

• Become more energy efficient. Gas prices and higher utility bills have left many Americans with empty wallets. Consider using your rebate check to upgrade your appliances to energy-efficient models that can lower your electric, gas, and water bills and save you money in the long run.

• Grow your money. The eighth wonder of the world is compound interest. Depositing $1,200 into a savings vehicle that earns 8 percent interest can really add up. After 10 years, your $1,200 will be worth more than $2,500. After 20 years, your money will have more than tripled at $5,593.

Expect when the checks do begin to arrive that many retailers will entice people to spend their checks by offering special sales and incentives.

Tags: consumer spending, Debt Relief, economic stimulus package, government check, Money Management International